What are Equity Linked Savings Schemes in Mutual Funds?
Equity-linked saving schemes are open ended equity mutual funds which are eligible for tax benefits under Section 80C. Below are some of the features that will help you make better investment decisions.
Taking a walk through the Equity linked savings:
Well, to simply define Equity linked savings scheme is a mutual
fund scheme that invests more than 65% primarily in domestic equity markets. ELSS offers a tax deduction of up to 1.5 lakhs to the investors under the section 80C
of the Income Tax Act, 1961. Like any other equity schemes, this investment scheme
is suitable for the people who have got an appetite for medium to high risk and aim to
generate capital appreciation over the medium to long-term. In simple words, ELSS
helps in dual advantage of tax savings as well as growth of wealth but the only problem is it comes with a lock period of 3 years.
Features of ELSS,
making it worth:
When we talk about
ELSS, there are many distinguishing features which actually make it a
profit making investment.
The features are as follows:
The features are as follows:
- It is a diversified equity mutual fund which has a majority of the corpus invested in equities.
- Automatic long term investment since lock- in period is 3 years from respective date of investment
- Tax benefits under Section 80C which has got a potential saving of 46,350 at the time of investment if you fall in highest tax bracket
- Dividends declared are tax-free.
- No long-term capital gains tax on the withdrawal
- ELSS has got the potential for much higher returns compared to other tax saving instruments.
- Available in both SIP and lump sum investment options.
Advantages of Equity Linked Savings Schemes
Looking at the trend of ELSS, the tax saving options in ELSS is simply turning out advantageous. This is true because it is one of the best taxes saving instrument one has got in its hand. The advantages of ELSS are as:
Looking at the trend of ELSS, the tax saving options in ELSS is simply turning out advantageous. This is true because it is one of the best taxes saving instrument one has got in its hand. The advantages of ELSS are as:
- As compared to the traditional tax, this is indeed one of the best methods of growing your money.
- ELSS is an investment in equity markets and investing in this for a long-term can give you better returns compared to other asset classes over the long term.
- It has got the shortest lock period.
· ELSS are subject to market risk and volatility of
Stock Market and because of this it has the highest earning potential
Disadvantages of Equity Linked Savings Schemes
Where there are advantages, there are disadvantages too. So, you need to deal with all of them. ELSS too has got disadvantages and they are as follows:
The investment in the
ELSS is just similar to any other mutual fund investment scheme. So, you can
buy this mutual fund unit through the mutual fund distributor. In many cases,
the stock broker also serves as a mutual fund distributor. The are independent mutual fund portals which provides online services for buying and selling of mutual funds schemes.
You can save your investment with the help of the online and offline mode. Disadvantages of Equity Linked Savings Schemes
Where there are advantages, there are disadvantages too. So, you need to deal with all of them. ELSS too has got disadvantages and they are as follows:
- Money invested in ELSS are directly related to stock market, risk is involved.
- Subsequent investment is also locked for 3 years. For Example you invested via SIP on 01/06/2016 & 01/07/2016 then on 01/06/2019 your units purchased on 01/06/2016 will be available for redemption
- And lastly, you should consider that you can’t reduce the impact of market fall, as you can’t switch or redeem investment before 3 years
How can one invest in
ELSS?
Compared to regular equity schemes, ELSS funds have a lower investment threshold of Rs 1000. You can also invest a large amount at one go, but the best way to invest in equity-oriented instruments is through SIPs.
For example, if you have Rs 30,000 to invest in ELSS funds this year, split them into three installments between now and 31 March. This will lower the risk by averaging out your cost of purchase. To start an SIP, submit post-dated cheques or give an ECS mandate to your bank.
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